Early on, it seemed that 2008 would be marked by frequent displays of shareholder discontent. Activist institutional investors, angered by the Securities and Exchange Commission’s decision in November to bar proxy access proposals, appeared ready to rally behind shareholder proposals seeking independent board chairs and advisory votes on executive pay. The SEC also frustrated activists by allowing many firms affected by the credit crisis to exclude most of their new proposals that sought compliance committees, mortgage risk reports, and better CEO succession planning.

After the labor-affiliated Change to Win Investment Group (CW) threatened “vote no” campaigns against directors at six large financial companies in January and February, it appeared that many investors would vote against board members at other financial firms and homebuilders. Democratic lawmakers joined the fray, holding a hearing in early March to denounce the generous compensation received by outgoing executives at Countrywide Financial, Citigroup, and Merrill Lynch.

However, shareholder views appeared to shift after Bear Stearns, an 85-year-old Wall Street stalwart, suddenly collapsed in mid-March. The firm, which had traded at $170 per share a year earlier, initially agreed to be sold for $2 a share to JPMorgan Chase in a government-supported bailout (JPMorgan ultimately agreed to pay $10 per share).

“Simply put, the bear market mauled the 2008 proxy season,” said Pat McGurn, special counsel for RiskMetrics Group's ISS Governance Services unit. “The collapse of Bear Stearns on the eve of the season let most of the air out of the shareholder activism balloon.”

The fall of Bear--along with soaring oil prices and falling real estate values--helped drive consumer and retail investor confidence and optimism to new depths. The TIPP economic optimism index--conducted by TechnoMetrica Market Intelligence for Investor’s Business Daily and the Christian Science Monitor--hit an all-time low in April and has continued to fall. The Yale School of Management’s Stock Market Confidence Index (the one-year outlook) for individual investors also hit its low point for the decade in April.

The season’s vote results suggest that many shareholders were more inclined to back management and refrain from supporting shareholder proposals or initiatives to unseat directors. With a few notable exceptions where compensation concerns were raised or a heavily staked hedge fund led the charge, most directors at U.S. companies were elected with wide support. While investors expressed slightly more support for “say on pay” advisory vote proposals and independent board chair resolutions, the increases were less than what some governance observers had expected at the start of the year. At six financial firms, support for “say on pay” actually declined from 2007 levels.

“People are focusing on whether there is going to be a tomorrow in the market, and not on these traditional governance issues,” James Cox, a securities law professor at Duke University, told Risk & Governance Weekly. “Some institutions may believe--given the trauma of the marketplace--that management shouldn’t be distracted by these concerns.”

Activist investors also appeared to shift their tactics after Bear’s collapse. The American Federation of State, County, and Municipal Employees (AFSCME) and two state pension funds dropped plans to sue Bear and JPMorgan over the exclusion of proxy access proposals. CtW decided to wage “vote no” campaigns at just two of its targeted six financial firms, while the AFL-CIO dropped a campaign against C. Michael Armstrong, Citigroup’s audit and risk management committee chair, after the company announced that he would leave the panel. The California Public Employees’ Retirement System, the largest U.S. public pension fund, focused its attention this year on firms outside the troubled financial and homebuilding sectors (with the exception of a “vote no” campaign at Standard Pacific).

This muted investor response was apparent at the April 8 meeting of Morgan Stanley, the first of the major Wall Street firms to hold its annual meeting. Despite a “vote no” campaign by CtW against two directors and Chairman/CEO John Mack, all the directors won at least 90 percent support, which is consistent with historic voting patterns at the firm. Several other factors may have contributed to the results. Mack is well liked on Wall Street, so many investment managers were reluctant to vote against him, CtW officials said. Most of Morgan Stanley’s writedowns stemmed from a single failed trading strategy, rather than broad exposure to mortgage-backed securities; Mack responded by firing the head of trading and replacing the chief risk officer, which helped assuage investor concerns. Duke University’s Cox also noted that Mack’s decision not to accept a bonus in 2007 also dampened potential opposition.

At most financial firms, directors received overwhelming support this year. Wachovia’s board members all received more than 92 percent support at the annual meeting, which occurred before the company reported more problems in its loan portfolio and fired its CEO in June. At Lehman Brothers, the directors all won at least 95 percent support. Bank of America also avoided an opposition campaign this year, but it may face greater scrutiny from investors in 2009 over its purchase of Countrywide. Countrywide, which was the largest U.S. mortgage lender, was targeted by labor funds late last year, but it didn’t hold a regular 2008 meeting.

At some companies, there may have been a limited response because investors didn’t learn of the full extent of their firm’s problems until after the annual meeting. Lender IndyMac and mortgage financiers Freddie Mac and Fannie Mae--whose troubles made headlines in July--faced no organized investor opposition at their meetings in May and early June and received just one shareholder proposal.

For instance, all six financial firms targeted by CtW agreed to meet with the labor investment group. The United Brotherhood of Carpenters and Joiners of America withdrew more than half of its pay-for-performance proposals after negotiations with companies. A record number of issuers have sponsored board declassification proposals this year. And at ExxonMobil, independent chair proponents say their proposal would have done better but for the oil company’s “unprecedented outreach effort . . . to solicit votes from institutional and retail investors.”

“What shareholders were looking for was responsiveness from directors, and in those cases, they gave them a break,” recalled Richard Ferlauto, director of pension and benefit policy at AFSCME.

Notable Withhold Votes
The most notable display of investor discontent occurred at Washington Mutual’s April 15 meeting. CtW urged investors to vote against Mary Pugh, chair of the finance committee, and James Stever, chair of the human resources committee, which oversees compensation. AFSCME waged its own campaign against Stever and four of his fellow panel members at the Seattle-based lender. The labor investors assailed the human resources committee’s decision to shield 2008 executive bonuses from the firm’s subprime losses, while CtW argued that Pugh should be held accountable for the company’s risk management failures. Investors also complained about equity dilution after WaMu negotiated a $7 billion cash infusion from TPG Capital.

Overall, nine WaMu directors received at least 26 percent opposition. A year earlier, all the directors received at least 92 percent support. Pugh stepped down after receiving 49.9 percent opposition, while Stever and director Charles Lillis received more than 40 percent negative votes. In early June, WaMu responded by appointing an independent chairman, adopting majority voting in board elections, and naming new chairs to its finance and human resources committees.

Michael Garland, CtW’s director of value strategies, said the WaMu results show that an increasing number of money managers and mutual funds will consider voting against directors if “there is a compelling fact pattern.” “At Washington Mutual, it all came together,” he said, noting the firm’s “strategic failures” and poor compensation practices.

There also were notably high withhold votes at several firms where there were no concerted opposition campaigns. At Citigroup, three pay committee members received more than 25 percent opposition--all the firm’s directors had at least 93.7 percent support in 2007. The dissent this year appeared to be a reaction to former CEO Charles Prince’s exit package. He received a $10.4 million bonus for 2007, even though the company’s shares fell 43 percent that year. Citigroup also agreed to give him an office, an administrative assistant, and a car and driver for five years (or until he commences full-time employment with another employer), and pay certain taxes on these post-termination benefits.

While Capital One Financial was not targeted by investors, three pay panel members received almost 21 percent opposition. In 2007, the three directors running for reelection to the firm’s classified board all won more than 93 percent support. This year’s vote appears to stem from the compensation committee’s decision to grant stock options worth $23.5 million to CEO Richard Fairbank in 2007, while the company’s stock price fell. The shares at the McLean, Va.-based credit-card firm posted a 38.4 percent one-year decline, and a 17.4 percent decrease over three years.

The director votes at Citigroup and Capital One suggest that compensation concerns still resonated among many shareholders, even in the absence of “vote no” campaigns. At Washington Mutual, the executive bonus policy was a significant factor in fueling opposition, whereas investors did not raise compensation concerns at Morgan Stanley. “Compensation seemed to be key,” recalled Ferlauto of AFSCME. “When investors seemed to be incensed by pay, there was a reaction.”

In the homebuilding industry, there were greater than 23 percent withhold votes against directors at Toll Brothers, KB Home, and Hovnanian Enterprises that also appeared to be a reaction to compensation practices. Most of the homebuilders have yet to report their official board election results, so there may have been significant opposition at other firms, such as Ryland Group, which faced a CtW “vote no” campaign.

Mixed Results for “Say on Pay”
While compensation concerns led to significant withhold votes against some directors, that discontent did not translate into greater support for “say on pay” proposals. At six financial companies where the issue also was on the ballot in 2007--Merrill Lynch, Wachovia, Citigroup, Morgan Stanley, Capital One, and Wells Fargo--there was lower support this year. At Merrill Lynch, support fell from 45.6 percent to 37.5 percent, while the vote at Citigroup declined from 46.2 percent to 41.9 percent this year. Ferlauto of AFSCME, which filed numerous pay vote resolutions, attributes the lower results at Merrill Lynch and Citigroup in part to CEO changes. “There’s a honeymoon period,” he said. “At Merrill and Citi, there was new management, so shareholders gave them the benefit of the doubt.”

Within the financial sector, the best showings for “say on pay” were 44.9 percent support at Bank of America and 45.6 percent at Goldman Sachs. Neither firm faced that proposal in 2007. Ferlauto said he believes the issue also would have done well at Washington Mutual, but proponents did not file that resolution there because they were focusing their attention on Countrywide and the Wall Street firms.

At the same time, the overall support for advisory vote proposals increased marginally at U.S. companies. According to preliminary and final results available as of July 15, those proposals have averaged 42.7 percent support over 52 meetings this year, up slightly from 42.5 percent support over the same number of meetings in 2007. Shareholders at nine companies, including Lexmark International and Apple, gave greater than 50 percent support (based on the votes cast for and against) to “say on pay” proposals through July 15, compared with eight majority results during all of 2007. Notably, all of this year’s proposals earned at least 30 percent support, except at Wal-Mart Stores where officers and directors control a 43.4 percent stake.

A total of 75 “say on pay” resolutions are slated for a vote this year, up from 50 in 2007, according to RiskMetrics data. Most of the remaining vote results will become available when companies file their second-quarter 10-Q reports in early to mid-August. Investors withdrew two proposals, at Johnson & Johnson and Verizon Communications, the latter of which has committed to holding an investor pay vote in 2009. The SEC allowed companies to omit an additional nine resolutions.

This is the third year that shareholder pay vote proposals have been on the ballot at U.S. firms. They appear unlikely to match the third-year success posted in 2006 by investor proposals seeking a majority voting threshold in director elections. In that year, majority vote proposals averaged about 50 percent support at 84 companies and won majority support at 36 firms, according to RiskMetrics data.

James Cox, the Duke University law professor, expects that investor support for advisory votes will increase in the future, and said this year’s showing may be “a product of the times.” “It’s hard to imagine not having ‘say on pay’ in some form, given that it exists in England,” Cox noted. Both major U.S. presidential candidates have endorsed the concept of advisory pay votes.

Other Compensation Proposals
Pay-for-performance proposals have averaged 27.4 percent support over nine meetings where results are known, as opposed to 29.5 percent support over 38 meetings last year. This average does not include a 91 percent result at Credence Systems, where management supported the measure, however. Twenty-five proposals have gone to a vote this year, according to RiskMetrics data.

The most notable development this season was the increase in investor-issuer engagement on this issue. The Carpenters and other investors withdrew more than 30 performance-based pay resolutions after discussions with companies, as compared with 17 withdrawals last year. (For more on those proposals, please see this week’s “In Brief” section.)

Early results suggest that investors were more receptive to limits on supplemental executive retirement plans (SERPs). Just eight SERP-related proposals were filed this year, and half of those were withdrawn. Resolutions asking for greater disclosure of, limits on, or shareholder approval of SERPs have won 35.8 percent support at AT&T and 44.7 percent at Black & Decker so far this year. SERP proposals averaged 32.9 percent support at 14 meetings last year.

One compensation proposal topic has fared considerably less well this year--shareholder requests to “claw back” management bonuses in case of a restatement or malfeasance. Five proposals this year won an average of 10.7 percent support, as opposed to 31.9 percent support at 10 meetings in 2007.

A new AFL-CIO proposal that seeks “responsible” executive employment agreements garnered 33.9 percent support over two meetings. Only three were filed this year, but Daniel Pedrotty, director of the labor federation’s office of investment, told Risk & Governance Weekly that the proposals will be re-filed next year, though he said it was too early to determine which firms will receive the proposals.

A new AFSCME proposal to prohibit tax payments, or “gross ups,” to executives, won 44.5 percent support, on average, over four meetings. Resolutions asking for stock options to be performance-based received 15.9 percent support at General Motors and 32 percent at Boeing, proponents say.

Board Reform Proposals
Independent board chair proposals received record support this year--31.3 percent support over 20 meetings, 4.6 percentage points higher than last year, when they averaged 26.7 percent support over 43 meetings. Twenty-seven proposals have gone to a vote this year, though, with seven meeting results still outstanding. While an independent chair is the prevailing practice in the United Kingdom and many international markets, many U.S. firms have been reluctant to embrace this reform. Forty-five percent of S&P 1,500 companies have separate chairman/CEO positions, but just 17 percent of those firms have independent chairs, according to RiskMetrics data.

The resolution receiving the most media attention was an independent chair proposal at ExxonMobil. While a coalition of activist investors, state pension fund officials, and Rockefeller family members endorsed the measure, the proposal received 39.5 percent support, less than last year’s 40.7 percent showing at the oil giant. An independent chair proposal received 51.5 percent support at Washington Mutual, which since has appointed an independent chairman. Wachovia took that step in May, although it didn't have an independent chair resolution on the ballot this year. Other high votes include 43 percent support at Time Warner and 42.8 percent at Pfizer.

A new proposal this year that asks boards to establish an independent “lead director” has garnered an average of 36.3 percent support over four meetings. Only four proposals were voted this year, all filed by individual investors.

Fewer resolutions seeking majority voting in uncontested board elections went to a vote in 2008, as more companies agreed to adopt bylaws on that topic. So far this year, 47 of the 90 majority vote resolutions filed have been withdrawn by proponents. At the 16 meetings this season where results are known, majority voting proposals won 50.4 percent support--the same percentage as last year. This average does not include the 90 percent-plus votes at Analog Devices and RadioShack, where the shareholder resolutions were supported by management. Including those votes, the overall average support rises to 55.2 percent. The total number of proposals filed has declined from 134 last year and 143 in 2006.

Meanwhile, 31 firms have asked shareholders to approve a majority vote standard this year, while 32 did last year, according to RiskMetrics data. More than 72 percent of S&P 500 companies have adopted some form of a majority vote standard, according to Claudia Allen, a partner with the law firm Neal, Gerber & Eisenberg, who conducts an annual study on majority voting.

Investor calls for cumulative voting have also seen increased support so far, with 37.7 percent support over 12 meetings, compared with 33.7 percent over 24 meetings last year.

Takeover Defenses
Resolutions asking firms to end staggered boards received slightly less support so far this year, with 60.2 percent average support at 16 meetings where results are known. This compares to 63.9 percent support over 38 meetings in 2007. Support for shareholder declassification proposals has waned since 2006, when the topic averaged 66.8 percent. The highest vote so far this season came at Kilroy Realty’s May 20 meeting, proponents say, when 93 percent of investors supported annual director elections, despite management opposition. The average support for this year may change as more results become available, as 80 proposals have been or will be put to a vote in 2008. Investors withdrew six declassification proposals, while the SEC allowed companies to omit an additional 13.

What is notable this season is the number of board declassification proposals put forward by management. So far this year, 79 companies have placed declassification resolutions on the ballot. There were 54 company-sponsored proposals in 2007, and 72 management resolutions in 2006, according to RiskMetrics data.

Investor calls to eliminate supermajority requirements for bylaw changes and other matters also continue to garner significant support, although less than the 2007 peak average of 67.9 percent. The measure has won 60.5 percent support over 12 meetings this year.

The number of proposals asking for the right of shareholders to call special meetings increased dramatically this year--from 22 in 2007 to 51 proposals filed in 2008. Twenty-two companies this year were allowed to omit special meeting proposals, while 31 went to a vote. At the 26 companies where results are known, those proposals logged 45.9 percent average support, a drop from last year's 56.5 percent support over 18 meetings. Shareholder activist John Chevedden, whose network of retail investors filed most of the special meeting proposals, recalled that proponents revised their resolved clauses in the middle of the 2008 submittal period to remove a 10 percent shareholding requirement. Many of those resolutions were excluded at the SEC or received less support, he said, adding that investors later reverted to their original proposal language.

Investors are continuing to submit fewer proposals that target “poison pill” takeover defenses. Just 13 have been filed in 2008, down from 22 in 2007, 35 in 2006, and 51 in 2005. Of this year's resolutions, five have gone to a vote, while six were withdrawn, and two were omitted. So far, those proposals have averaged 50.3 percent support over four meetings this year, compared with 37.6 percent average support over 16 meetings last year.

Hedge Fund Activism
2008 is on pace to shatter the all-time record for proxy challenges, although few contests have gone to a vote. Given the market meltdown, many boards have been willing to provide board representation to dissidents. Hedge funds have brokered seat-ceding settlements at scores of boards, including those at Sprint, Dillard's, Charming Shoppes, the New York Times Co., Borders Group, Tiffany, and Zales.

“While many public and labor funds appeared reluctant to rock a sinking ship, hedge fund activists were only too happy to raise the Jolly Roger,” noted McGurn of RiskMetrics.

Editor’s Note: RiskMetrics reports vote percentages based on “for” and “against” votes cast, excluding abstentions or broker votes. This is the same approach the Securities and Exchange Commission uses under Rule 14a-8(i)(12) to evaluate the support received by proposals in previous years. Note that many results are preliminary and do not include all 2008 meetings as of July 15, because some companies have declined to release vote totals on shareholder resolutions until their next quarterly regulatory filings. The figures in the table below do not include management-sponsored or supported proposals.

The bylaw proposal was filed by the American Federation of State, County, and Municipal Employees as an alternative to proxy access resolutions, which the Securities and Exchange Commission has allowed companies to omit. The AFSCME proposal would have required the board to reimburse successful dissidents for their “reasonable expenses” in future short-slate contests.

The case is the first time that the Supreme Court has granted a request by the SEC to rule on the legality of a shareholder proposal. Islandia, N.Y-based CA, which--like a majority of U.S. public companies--is incorporated in Delaware, asked the SEC for permission to exclude the AFSCME proposal from the proxy statement for its Sept. 9 annual meeting.

The CA v. AFSCME decision can be seen as a partial victory for investors because the Supreme Court ruled that an election-related bylaw is a proper matter for shareholder action. As Justice Jack Jacobs noted in the court’s opinion, “the shareholders of a Delaware corporation have the right ‘to participate in selecting the contestants’ for election to the board. The shareholders are entitled to facilitate the exercise of that right by proposing a bylaw that would encourage candidates other than board-sponsored nominees to stand for election.”

However, the Supreme Court went on to conclude that AFSCME’s bylaw would violate Delaware law because it would prevent CA’s board from fully exercising its fiduciary duties. While the labor union’s proposal specified that the board should award only “reasonable” expenses, Jacobs said that provision “does not go far enough because the bylaw contains no language or provision that would reserve to CA’s directors their full power to exercise their fiduciary duty to decide whether or not it would be appropriate, in a specific case, to award reimbursement at all.” The court noted that a board has a fiduciary duty to deny reimbursement in cases where a proxy contest is “motivated by personal or petty concerns” or would promote interests “adverse” to the corporation.

Following the CA decision, AFSCME said it would renew its efforts to pursue proxy access at the SEC. A short-staffed commission voted last November to allow companies to resume omitting access bylaw proposals, but SEC Chairman Christopher Cox has pledged that the agency would revisit the issue. With the U.S. presidential elections less than four months away, it’s unclear whether the SEC will tackle this controversial issue as it confronts other regulatory concerns that stem from the credit crisis.

“This decision makes Delaware less relevant to future discussions about shareholder rights, and makes a federal solution the only alternative for shareholders seeking fair and open elections,” said Richard Ferlauto, AFSCME’s director of corporate governance and pension investment. “The ball is pushed back to the SEC for when the next chairman will finally have to resolve shareowner rights to proxy access.”

J. Travis Laster, a partner with the Abrams & Laster law firm in Wilmington, Del., offered a more sanguine view of the CA decision in a posting on TheCorporateCounsel.net weblog. “Although many will likely view this as a loss for stockholders, I believe they should view the case as a significant win. Yes, the director-reimbursement bylaw was held invalid, but the court held that the election process was a proper subject for stockholder action. A bylaw mandating the inclusion of stockholder nominees on the company’s proxy statement should fare much better under a CA analysis,” he wrote.

However, Laster cautioned that the ruling would be “generally negative” for stockholder bylaws that don’t relate to elections. The court’s analysis “should doom any substantive component to a [poison] pill redemption bylaw, such as a requirement that directors not adopt or renew any pill that could be in place longer than a year,” he wrote in his posting.

The New York law firm of Wachtell, Lipton, Rosen & Katz, which represents companies and boards, hailed the CA ruling and concluded that the Supreme Court’s reasoning would preclude shareholder bylaws that would prevent boards from adopting poison pills. “The Delaware Supreme Court’s unequivocal and welcome holding should discourage further efforts by stockholder activists to erode the fundamental prerogatives of the board of directors. The opinion will hopefully signal that the courts will not permit directors to be undermined or constrained in the exercise of their fiduciary duty in the broad range of subjects traditionally within their ambit as stewards of the corporation,” the firm wrote in a memo on the case.

The court will hear arguments on the matter on July 9 in Dover. This is the first time that the Supreme Court has agreed to resolve a legal question presented by the Securities and Exchange Commission (SEC). Delaware lawmakers approved legislation in 2007 to allow the SEC to directly ask the Supreme Court to rule on disputes over shareholder proposals.

The bylaw proposal--filed by the American Federation of State, County, and Municipal Employees (AFSCME)--would require the Islandia, N.Y.-based software company to reimburse successful dissidents for their “reasonable expenses” in future short-slate contests. To qualify for reimbursement, the dissidents would have to seek less than 50 percent of the board seats, win at least one seat, and there not be cumulative voting in place. In addition, the reimbursed expenses could not exceed the sum spent by the company on that election.

Attorneys for CA asked the SEC’s Corporation Finance Division in April for permission to exclude the proposal, arguing that it is barred by SEC Rule 14a-8(i)(8), is not a proper subject for shareholder action, and could violate Delaware law. Lawyers for AFSCME’s pension plan responded by asserting that investors have broad authority under Delaware law to enact bylaws and may constrain actions by directors.

On June 27, the SEC asked the Supreme Court to rule on: 1) whether the resolution is a proper subject for shareholder action; and 2) whether the proposed bylaw would cause CA to violate any Delaware law. On July 1, the court agreed to hear the case, and directed the parties to submit briefs on the dispute by July 7.

Richard Ferlauto, director of pension and benefit policy at AFSCME, said he is encouraged that Delaware now allows disputes over shareholder proposals to go directly to the Supreme Court. In past disputes over Delaware law, investors have had to file a lawsuit in Chancery Court and then wait “months or years” for the case to reach the Supreme Court, he noted.

AFSCME has filed several short-slate reimbursement proposals as an alternative to proxy access resolutions, which the SEC allowed companies to omit this year. Reimbursement generally is not an issue in full-slate contests, as dissidents who win board control typically are able to recover proxy expenses. An AFSCME reimbursement proposal is on the ballot at computer maker Dell on July 18. A similar proposal went to a vote May 8 at Apache, which has not yet released official vote results. A reimbursement resolution received 13.9 percent support at the Houston-based oil firm in 2007.

Feraluto said he is “optimistic” about the labor fund’s chances in the CA bylaw dispute. “While a corporation has wide latitude for the actions it takes, that’s based on the premise that directors are agents of shareholders,” he said. “The corollary is that shareholders should be able to structure the procedures for nominating and electing directors.”

In a memo on the case, the law firm of Wachtell, Lipton, Rosen & Katz, which represents directors and companies, noted that Delaware law “has generally limited the ability of shareholders pursuing special interests to recover their solicitation expenses.” The firm concluded that the Supreme Court would “have a strong basis to reaffirm the traditional prerogatives of the board under Delaware law to manage the business of the corporation and decide how to spend its funds.”

The Supreme Court likely will rule on the dispute quickly. CA plans to file its definitive proxy statement by July 17 for its Sept. 9 annual meeting. This case may have broad significance for U.S. companies and shareholders, as 61 percent of New York Stock Exchange and Nasdaq-listed firms are incorporated in Delaware, according to Bloomberg News. “Whatever happens, it will be precedential,” Ferlauto said.

“The North Dakota law is far ahead of any other state corporation law in providing rights for stockholders,” wrote proposal proponent Kenneth Steiner in the resolution’s supporting statement. “It addresses each of the major issues in corporate governance.”

The North Dakota statute, which took effect on July 1, 2007, is among the friendliest to shareholders, according to those familiar with the resolution. The law mandates the separation of the chairman and CEO positions, annual election of directors, and the right of 5 percent shareholders owning stock for two years or more to nominate corporate directors, as well as another half-dozen or so measures widely seen as empowering shareholders.

“It’s an intriguing idea and someone was bound to do it sooner or later,” said Cornish Hitchcock, an attorney for the Amalgamated Bank’s LongView fund. “It will be interesting to see how it plays out in terms of shareholder approval.”

Advocates of the North Dakota statute believe the measure will generate measurable support among investors should it come to a vote. “I would think any shareholder who understands the benefits of the North Dakota law would support this proposal,” said William H. Clark, Jr., a Philadelphia-based attorney with Drinker Biddle & Reath.

Clark, who served as president of the North Dakota Corporate Governance Council, which drafted the statute, also noted that the law required shareholders nominating director candidates not nominated by management to be reimbursed for their proxy expenses “to the extent they are successful.” That automatic right of reimbursement for solicitation expenses has gained added import in light of the Securities and Exchange Commission’s decision late last year to bar proxy access proposals and a pending decision by Delaware’s judiciary as to whether or not a reimbursement proposal filed at Long Island-based CA would violate Delaware law.

The proposal also may fare well based on support given to other recent proposals to reincorporate to another jurisdiction. The United Brotherhood of Carpenters and Joiners of America filed proposals at a handful of Ohio-based companies’ 2007 annual meetings calling for their reincorporation to Delaware. At the time, Ohio law required companies to use a plurality voting standard, and the proposals served to eventually pressure local lawmakers to amend Ohio corporate law statutes to allow for a majority voting standard in director election. The proposal was voted on at FirstEnergy, DPL, and Convergys, according to RiskMetrics records, where it received 34.9, 32.6, and 59.5 percent support of the “for” and “against” votes, respectively.

But the view that the North Dakota reincorporation resolution will be well received by shareholders is not shared by all, with some observers arguing incorporation in Delaware is more beneficial to investors. “Ultimately, it comes down to the judiciary, and the view is that the Delaware judiciary is investor protective,” said Delaware University professor Charles Elson. “There is no corporate judiciary in North Dakota dedicated to the resolution of corporate disputes.”

That underlying premise is flawed, argues Clark, because the need to rely on the Delaware judiciary effectively concedes that the Delaware corporation law is fundamentally “not protective” of investor rights. “My preference as an investor would be to make sure the law is clear, rather than having to run to the courts to establish my rights,” said Clark. “The Delaware judiciary is limited by the statute in the rights it can provide investors. There’s no way, for example, that the Delaware judiciary could create a right of proxy access, which North Dakota has.”

Hain officials did not immediately respond to requests for comment on receipt of the resolution and whether they would seek to challenge it at the SEC. Of 17 proposals relating to reincorporation over the past decade, just three were omitted at the SEC, according to RiskMetrics records. Hain held its 2007 annual meeting on April 1 of this year and will hold its 2008 annual meeting sometime this fall.

Shareholder activist John Chevedden, who worked with Steiner on drafting and filing the proposal, said he had so far not engaged in any dialogue with the company on governance concerns. Chevedden also said he will be looking into filing the proposal at other companies as deadlines approach for submissions for 2009 annual meetings.

To view the proposal, please Download file.

As such, RiskMetrics Group's new report, Sovereign Wealth Funds & Emerging Governance Issues, is intended to: (1) provide an overview of sovereign wealth funds; (2) identify key and emerging issues of interest to institutional investors; and (3) explore potential solutions to concerns related to the transparency practices of sovereign investors.

Key takeaways from the paper include the following:

* Sovereign wealth funds are firmly established. There are now roughly 40 such funds—half of which came into being since 2000—collectively managing assets in the range of $1.9 to $2.9 trillion. Macroeconomic trends, including a weak U.S. dollar, tightening of credit, growth in commodity prices, and market volatility suggest that sovereign investment, and its influence, will only grow.

* Traditional institutional shareholders are seeking to understand the investment objectives and strategies of these potential power brokers. The International Monetary Fund is now involved in consultations with more than two dozen sovereign wealth funds in an effort to develop a code of conduct for their transparency, and market regulators across the globe are considering guidelines for disclosure and related issues. Mainstream investors will wish to monitor and potentially influence these efforts.

* There are concerns that sovereign funds will primarily be “disengaged” investors in equities. Some traditional investors have suggested that they will ride the coattails of other shareholders who press underperforming management for change through governance activism; or that their proclivity for non-voting stakes could help to entrench or otherwise insulate underperforming management.

* Substantial investment from sovereign funds could lessen pressure on governments and corporations in developing economies to raise corporate governance standards in such markets.

* Sovereign wealth investors with long-term investment horizons may serve as a stabilizing force in the market, however. Most are not bound by the constraints of many traditional investors who may have to withdraw capital on short notice for income or liquidity needs. Moreover, sovereign investors have demonstrated their willingness and ability to expeditiously shore up the capital base of distressed companies.

* There is no standard disclosure model for sovereign wealth investors. But some sovereigns may be more comfortable with disclosure models other than that of Norway’s fund—widely viewed as the gold standard for transparency—and traditional institutional investors may wish to promote alternatives such as Temasek’s approach to transparency. Temasek, a Singapore-based fund, is an active investor disclosing key investment objectives and strategies though does not disclose its full portfolio or voting record.

* Pressure from lawmakers and regulators for sovereign investors to meet elevated standards of disclosure could have unintended consequences. Such pressure might lead to the funds avoiding direct investment in corporate issuers and allocating more of their capital to private equity and hedge funds, potentially leading to greater acquisition activity and proxy fights.

To access RiskMetrics new paper, Sovereign Wealth Funds and Emerging Governance Issues, please visit here.

The Children’s Investment Fund (TCI), a London-based equity group, and Cayman Islands-based 3G Capital Partners say they’re seeking board seats because CSX has refused to engage in dialogue about the firm’s business model. Together, TCI and 3G own 8.7 percent of the Jacksonville, Fla.-based company, and have an additional 12.3 percent stake through stock swaps.

The June 25 proxy contest will be the 30th challenge to go to a vote at a U.S. company this year. The fight for CSX has received the most media attention after Carl Icahn’s proxy bid at Internet firm Yahoo!, which is slated for an Aug. 1 vote. TCI’s decision in December to seek five seats on CSX’s 12-member board has led to a war of words in the press, legal actions on both sides, and even Congressional hearings.

The dissident slate includes TCI Managing Partner and founder Chris Hohn; Gilbert Lamphere, a former director at Canadian National; Timothy O’Toole, managing director of the London Underground subway system; Gary Wilson, former board chair at Northwest Airlines; and Alexandre Behring, managing director at 3G and former CEO of Latin American rail company America Latina Logistica. TCI aims to replace the four longest-tenured directors: Elizabeth Bailey (18 years); Robert Kunisch (17 years); William Richardson (15 years); and Frank Royal (14 years). The fifth targeted director, Jacksonville-based contractor Steven Halverson, has only one year of board service; TCI contends that he lacks experience with both CSX and with railroad management.

Hohn said his fund, which is CSX’s second-largest shareholder with a 4.4 percent stake, has tried unsuccessfully for over a year to engage the firm in a productive dialogue about the company’s future. The proxy contest was a last resort, but “it is impossible for us to effect the change we see as possible if we don’t change the board,” Hohn told Risk & Governance Weekly.

Though Hohn has said repeatedly that his dissident slate does not want to take over the company or oust management, CSX Chairman and CEO Michael Ward told Financial Week on May 21 that the proxy contest is specifically aimed at removing him. CSX maintains that it repeatedly agreed to meet with TCI representatives and offered board seats, lead director Ned Kelly said at a June 9 forum hosted by RiskMetrics Group.

Since its founding in 2003, TCI has sought to find “great companies with underperforming shares,” and attempt to engage with directors to turn performance around, Hohn said at the June 9 forum. TCI has a history of prompting action at its portfolio companies, recently catalyzing board and management change at German stock exchange holding company Deutsche Börse and bringing about the sale of Dutch financial firm ABN Amro to a consortium of European banks.

CSX, the third-largest U.S. railroad, argues that it does not need a turnaround. The company’s share price has risen more than 270 percent since January 2004. TCI counters that most of the stock gains stem from rising prices and productivity in the rail industry as a whole, rather than just at CSX. North America’s largest railroad companies have all posted stock price growth during the same period--Union Pacific (131 percent), Norfolk Southern (185 percent), Burlington Northern Santa Fe (257 percent), and Canadian National (154 percent)--though none as pronounced as CSX’s share gain.

In a May 30 bulletin, the BLET warned that TCI would increase investor returns by “disinvestment in capital improvements.” CSX likewise has criticized TCI’s call for freezing capital expansion; the company voiced its objection to such a strategy in a November letter to TCI. During the June 9 forum, however, Hohn sought to clarify, saying that TCI did suggest a capital freeze, but only in the case of Congressional re-regulation of the rail industry in order to avoid damaging shareholder value.

The BLET also contends that hedge funds like TCI often seek to break up companies and sell the pieces to benefit shareholders, while company workers suffer. The union cites an article in the Jacksonville-based Florida Times-Union that linked TCI’s role in the sale of ABN Amro to the layoff of 550 Jacksonville-area Amro employees. TCI founding partner Snehal Amin dismisses this claim as “totally untrue,” telling R&GW that Amro sold that branch of its business to Citigroup--in which TCI held no shares at the time--and had no connection to the Florida layoffs.

The BRS has questioned the experience of the dissident nominees. However, one of the foundations of TCI’s proxy challenge is that none of the incumbent board members, aside from CEO Michael Ward, have railroad management experience. One new director on the management ballot this year, John McPherson, is a former president of Florida East Coast Railway.

The union echoes CSX’s claim that dissident nominee Behring, of 3G, presided over a railroad with an “abysmal” safety record. Behring noted, however, that the safety record of the Latin American railway he managed experienced an overall dip in safety when it acquired a smaller and poorly maintained track network, which he said the company brought up to excellent safety standards within a year.

Another labor investor, the United Transportation Union (UTU), is remaining neutral in the proxy fight as part of a wage agreement with CSX. The union originally backed TCI’s reform requests, though. “The hired hands who manage CSX railroad should be given their walking papers,” UTU International President Paul Thompson said in an October statement on the union’s Web site. The statement also goes on to criticize CSX’s treatment of workers and its safety record.

“If CSX had devoted more attention to running its railroad as efficiently as other railroads do, they wouldn’t be in the position they’re in,” UTU spokesman Frank Wilner told R&GW.

Large public pension funds have also said they will weigh in on the contest. The California Public Employees’ Retirement System plans to release its vote recommendation the week before the June 25 meeting, fund spokesman Clark McKinley told R&GW. The public pension funds of New York City also have holdings in CSX, but reported that the city comptroller’s office, which controls the funds, has not yet taken a position.

Meanwhile, hedge fund TPG Axon Capital, which owns 2 percent of CSX, plans to support the dissident slate, according to the Reuters news service.

Lawmakers Scrutinize TCI
Lawmakers in Washington have also joined the debate. The House of Representatives Committee on Transportation and Infrastructure called a hearing in March to discuss foreign investment in the railroad industry. Michael Ward and Snehal Amin both testified at the March 5 proceeding. CSX is well-connected in Washington; according to the Associated Press, the company spent approximately $3.2 million in 2007 lobbying for issues such as legislation that would require hedge fund managers to register with U.S. securities regulators.

Rep. Corrine Brown, a Democrat who represents the district in Florida where CSX is based and chairs the House subcommittee dealing with railroads, accused TCI of trying to execute a “short-term money grab” in the case of CSX, the New York Post reported. Both Brown and fellow Democrat Rep. Nick Rahall of West Virginia repeatedly questioned Amin about TCI’s attempted “hostile takeover” of the rail firm, according to the Post.

Just prior to the hearing, CSX donated $20,000 to the Nick J. Rahall Appalachian Transportation Institute at West Virginia-based Marshall University, and an additional $25,000 to Edward Waters College, a Jacksonville-based historically black university with ties to Rep. Brown, news reports indicate. Just after the hearing, Michael Ward donated an additional $1 million to Waters College. The CSX chief executive told R&GW that he has been a patron of the college for 17 years, and that the million-dollar donation was a personal one, unaffiliated with the company.

More recently, six U.S. senators sent a letter to Treasury Secretary Henry Paulson Jr., asking for a review of TCI’s acquisition of CSX stock by the Committee on Foreign Investment in the United States (CFIUS). In the June 3 letter, Democratic Senators Evan Bayh (Indiana), Sherrod Brown (Ohio), Thomas Carper (Delaware), and Robert Menendez (New Jersey), along with Republicans Jim Bunning (Kentucky) and Mel Martinez (Florida), said the agenda of TCI’s investors is invisible to government regulators. “They could be charities and university endowments, but they could also be foreign governments’ sovereign wealth funds,” the lawmakers write. They call on Paulson and CFIUS to determine who TCI’s investors are and whether they threaten national security or the “vital asset” that is CSX.

Corporate Governance Concerns
TCI also is targeting what it sees as lax corporate governance at CSX. Before the proxy contest was launched, TCI sent a letter to the board, urging the company to separate the roles of chairman and CEO (both of which are held by Ward), refresh the board with independent directors, and align management pay with investor interests.

Early in the negotiations, the company said it offered TCI three board seats and a fourth mutually agreed-upon director. TCI wrote in its white paper, “CSX: The Case for Change,” that it accepted the board seats, but asked that the issue of chairman/CEO separation be put to a shareholder vote. The company wanted a commitment to an ongoing joint chairman/CEO position, TCI said, and when the dissidents objected, the company abruptly broke off negotiations. “Not saying ‘thank you very much,’ when we [offered the board seats] was unreasonable,” CSX lead director Kelly said at the June 9 forum.

The dissidents are still pushing for Ward to give up his chairmanship. Kelly noted that the board went against Ward’s wishes when offering the seats to TCI, proving that the directors had the autonomy to oppose management.

The company adopted a bylaw in February that allows shareholders owning 15 percent or more of the company’s outstanding stock to call special meetings. An investor proposal on this topic, submitted by the Rossi family, won 69.6 percent support at CSX’s 2007 annual meeting. “This is very much cutting-edge best practice [in corporate governance],” Ward told R&GW.

However, TCI says the new bylaw is flawed. Under the provision, shareholders cannot call special meetings to elect or remove directors, or call meetings to discuss issues on the agenda at an annual meeting within the 12 months of the special meeting date. CSX representatives said that the bylaw seeks to prevent “continuous recall elections” that would disrupt the board. TCI dismisses this rationale. “Management doesn’t want its actions to be scrutinized by … a better informed board,” Hohn said at the June 9 forum.

CSX’s proxy statement asks shareholders to approve the special meeting bylaw. TCI, which opposes that resolution, is asking investors to vote for its own special meeting proposal that would allow a 15 percent shareowner to request a meeting to address any issue, including director elections. In addition, the fund is seeking to repeal all bylaw amendments made by the board since Jan. 1. TCI is also urging shareholders to abstain from ratifying the company’s auditors.

Court Fight Over Swaps Disclosure
CSX and the dissidents also have engaged in litigation over the disclosure of “total return equity swaps,” which are cash-settled swaps that allow hedge funds and other investors to gain economic exposure to a stock (and tax advantages) without actually owning it. Under such an arrangement, a counterparty (such as a brokerage firm) holds and vote the underlying shares. However, some companies complain that hedge funds use these “stealth swaps” to avoid filing Schedule 13D reports to disclose equity stakes over 5 percent.

In a federal lawsuit in New York, CSX argued that the dissidents should have disclosed sooner the 12.3 percent stake that they maintain through equity swaps. The rail company asked U.S. Judge Lewis Kaplan to bar the dissidents’ slate and force them to sell part of their holdings. According to court documents, TCI began entering into swap arrangements in October 2006 and had amassed swaps that related to 10.5 percent of CSX's stock by January 2007. The dissidents ultimately negotiated swaps with eight investment banks.

Kaplan asked the Securities and Executive Commission for its opinion on the issue. In a June 4 letter, Brian Breheny, deputy director of the Division of Corporation Finance, concluded that a swap arrangement between a hedge fund and a counterparty is not sufficient to trigger Schedule 13D obligations. “In our view, the conclusion is not changed by the presence of economic or business incentives that the counterparty may have to vote the shares as the other party wishes,” Breheny wrote. He also noted that SEC is considering whether to propose a rule to address swaps.

The Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association weighed in for the dissidents, arguing in a court brief that subjecting swaps to 13D rules would “chill” the market for those instruments. Two University of Texas law professors who have jointly written articles on securities lending and “empty voting” issues reached opposite conclusions on the issue. Professor Bernard Black asserted in a court filing that no disclosure was required, while Professor Henry T.C. Hu concluded that disclosure should be mandated in those cases where there is a clear intent to influence the company, The New York Times reported.

On June 11, Judge Kaplan ruled that the dissidents had violated federal disclosure rules, but he said he was barred by U.S. appeals court precedent from blocking the funds from voting at CSX’s annual meeting. The judge criticized the dissidents for trying “to justify their actions on the basis of formalistic legal arguments even when it is apparent that they have defeated the purpose of the law.”

CSX responded to the court’s decision with a June 12 letter urging shareholders to “consider … these violations and the patterns of deceptive conduct from the TCI Group--including false testimony under oath--as you evaluate whether the TCI Group nominees are fit to serve on the board of a U.S. public company.”

Upcoming Proxy Contests
While the traditional U.S. proxy season is winding down, there still are several notable proxy fights on the horizon. Billionaire investor Carl Icahn is seeking board seats at pharmaceutical firm Biogen Idec, trying to replace three of the four directors up for re-election to the classified board at the company’s June 19 meeting. Icahn argues that current leadership at Cambridge, Mass.-based Biogen deliberately failed to find an acquirer for the company despite saying it was in search of a buyer.

Shareholders at Yahoo are scheduled to vote on Icahn’s 10-nominee slate on Aug. 1. He is seeking to unseat the entire board, including CEO Jerry Yang. The diverse dissident slate includes Harvard Law School professor and shareholder activist Lucian Bebchuk, and Internet billionaire Mark Cuban, owner of the Dallas Mavericks basketball team. The proxy challenge is aimed at forcing Yahoo to resume negotiations with Microsoft, which withdrew a $44.6 billion takeover offer in May.

Several contests will go to a vote at smaller firms in the coming weeks. Investors Ronald Gutstein and Scott Frisoli are seeking two seats at the June 16 meeting of Keweenaw Land Association, an Ironwood, Mich.-based hardwood logging firm. The following day, shareholders in Mahwah, N.J.-based footwear manufacturer Footstar will vote on a two-seat challenge by hedge fund Outpoint Group. Former Team Financial board member Keith Edquist is seeking three seats at the Overland Park, Kan.-based banking firm’s June 17 meeting. On June 20, former TVI directors will challenge management for two board seats. TVI, based in Glenn Dale, Md., manufactures emergency first-responder equipment and collapsible shelters for industry and the military.

Ted Allen contributed to this article.

Christopher Young, head of M&A Research for RiskMetrics Group, will moderate the forum, which will run two hours in order to provide both sides with ample time to speak and field questions from the audience. To register for this governance forum, please visit here.

RiskMetrics Group will host a webcast with analyst Dan Mahoney on June 2, at 10:00 am that will cover why the rapid market environment changes raise our concern that the lower pension and post-retirement expenses enjoyed by companies in 2007 may not be sustainable. During the forum, he will discuss the trends in pension and post-retirement expenses, and the affect such expenses have on mid- to large-cap companies traded on the major exchanges in the U.S.

To register for this webcast, please visit here.

Pay vote proposals have averaged 43.1 percent support over 35 meetings where preliminary or final results are known, compared to 42.5 percent support in 2007, according to RiskMetrics Group data. So far this year, “say on pay” has won majority support at six companies. The most recent majority vote came at the May 20 meeting of Alaska Air Group, where a resolution submitted by shareholder William Davidge won 53 percent support, according to news reports. Another recent majority result came at the May 17 meeting of utility company PG&E, where a “say on pay” measure received 52 percent support, proponents say.

Other firms where advisory vote proposals have garnered over 50 percent support include South Financial Group, Lexmark, Motorola, and Apple. The AFL-CIO, which submitted the pay resolutions at Apple and Motorola, plans to ask the companies in July and August to start holding annual non-binding votes on compensation. (For more information, please see the “In Brief” section of the May 9 issue of Risk & Governance Weekly.)

Earlier this season, support for “say on pay” slumped at several financial firms where the issue was voted on last year. Support for advisory vote proposals dropped at Citigroup on (from 46.2 percent to 41.9 percent this year), at Wachovia (from 38.7 percent to 30.6 percent), and at Merrill Lynch (45.6 percent to 37.5 percent).

Overall, there has been higher median support for “say on pay” this year. Last year, three pay vote proposals received less than 30 percent support, and 33 won over 40 percent support. So far in 2008, no proposals have received less than 30 percent support, and 26 have won over 40 percent. Investors filed more than 80 “say on pay” proposals this year; more than 70 resolutions will go to a vote during the traditional U.S. proxy season, which concludes at the end of June. Upcoming meetings that have pay vote proposals on the ballot include Altria Group and ExxonMobil on May 28, Raytheon on May 29, and General Motors on June 3.

It’s difficult to assess the support for other shareholder proposals on executive pay this year since few results have been released so far by companies or reported by the news media. A new proposal from the American Federation of State, County, and Municipal Employees that asks firms to eliminate tax “gross-up” payments on CEO perks and compensation has gone to a vote at four meetings so far. The measure won a 48.2 percent vote at CVS Caremark, according to proponents. The drugstore company noted in its most recent proxy statement that former Caremark CEO William Spalding--who left the post after the buyout by CVS--was given an approximate $2.9 million excise tax gross-up payment last year.

Requests to link executive pay to company performance are faring about as well as last year, though many of the vote tallies have yet to be released by companies. The resolutions--mostly sponsored by the United Brotherhood of Carpenters and Joiners--have averaged 30.8 percent support at five meetings thus far, compared with 29.8 over 38 meetings during the 2007 proxy season. About as many pay-for-performance proposals will be voted this year as last. Proponents withdrew 18 resolutions after negotiations with companies, leaving 37 proposals on company ballots.

This year, there are also fewer shareholder proposals asking for an investor vote on supplemental executive retirement plans (SERPs) or exit pay packages. Few results have been released, but a SERP proposal won a 45 percent vote at Black & Decker, proponents say, and a “golden parachute” proposal won 35 percent support at Boeing, according to proponents.

Resolutions asking companies to abolish the practice of granting stock options to executives--submitted at five firms by investor Evelyn Y. Davis--has averaged 6.4 percent support. This is slightly higher than last year’s average of 4.3 percent across six meetings.

Proposals asking for the right of investors to call special meetings are faring well for the second consecutive year. At 12 meetings where results are known, proposals asking that holders of 10 to 25 percent of outstanding stock be able to call meetings have averaged 51.8 percent support. Last year, those resolutions averaged 56.5 percent support at 18 meetings before June 30. Overall, 27 special meeting proposals are slated for a vote this year.

This year, investors have withdrawn most of the majority vote proposals (48 withdrawn) after negotiations with companies, but 31 are slated for a vote so far this year. Of 11 meetings where results are known, proposals have won an average of 45.3 percent support--not including a 92 percent result at RadioShack where company management supported the resolution. The best showing was 72 percent support at FirstEnergy. Majority vote resolutions received an average of 50 percent support over 36 meetings in 2007.

Board declassification proposals continue to win considerable support, with an average of 57.8 percent over seven meeting where results are known. Only one proposal so far has failed to win majority support. These proposals won an average of 63.9 percent support during the 2007 season.

So far, independent chair proposals are receiving record support. Those resolutions have averaged 32.1 percent support over 15 meetings this year, up from 30.2 percent support in 2006 and 24.8 percent support during the 2007 season. Investors will vote on the issue at Chevron and ExxonMobil on May 28, and at Legg Mason on July 22.

Proposals that ask companies to appoint an independent “lead director” with “clearly delineated duties” are on the ballot at six companies this year. So far, the resolution--new for 2008--has won 39.4 percent support at AT&T, 34 percent at Boeing, and 43.5 percent at Merck, according to preliminary tallies.

Support for cumulative voting is holding steady--averaging 34.1 percent support over six meetings so far. That compares to a 34.2 percent average across 22 meetings from January to June 30 last year. However, as most of the results for the 20 meetings at which the resolution appeared are not available, that number is likely to fluctuate as the companies holding second-quarter meetings begin reporting vote results in late July and August.

The California Public Employees’ Retirement System (CalPERS) once again submitted a proposal asking that shareholders be allowed to amend the bylaws by majority vote. The resolution, which won 48.8 percent support at Eli Lilly in 2007, received slightly more support--49.3 percent--at the firm this year. The proposal received 80.6 percent support last October at Sara Lee, which announced in January it would allow shareholders to amend company bylaws by majority vote.

Social and Environmental Proposals
Though most companies have not released vote results, social issue proponents have reported strong showings by proposals pertaining to greenhouse gas (GHG) emissions, sustainability reporting, human rights policies, and nanomaterial product safety.

Proposals asking companies to set specific targets for reducing GHG emissions won 33.7 percent support at Standard Pacific and a 41 percent vote at energy firm ConocoPhillips, according to proponents. These are the two highest results for this particular GHG proposal; the previous best showing, 31.1 percent, came at ExxonMobil in 2007. The resolution averaged 20.7 percent support over four meetings last year.

Resolutions that request sustainability reports are on the ballot at seven firms this year. Twenty-three sustainability proposals were withdrawn by proponents this year; in most cases, companies agreed to issue a report for the first time or to expand previous sustainability reports. A proposal at Dover received 39.5 percent support at the industrial products company’s May 1 annual meeting, according to proponents. This proposal averaged 27 percent support over 18 meetings last year.

A resolution asking companies to review or amend a standing human rights policy won 28.2 percent support at United Technologies, proponents reported. This is the third-highest result for a human rights-related shareholder proposal, excluding one at Newmont Mining last year that was backed by management. The highest came in at Cisco Systems in 2006 and 2007, with 28.9 and 35.8 percent support, respectively.

A new proposal this year asks companies to examine the safety of products containing nanomaterials, or components smaller than one micron (1/1000th of a millimeter). Avon Products shareholders gave the proposal 25 percent support--which is high for a first-year social issue proposal. Avon uses nanomaterials in some of its cosmetic products.

Editor’s Note: RiskMetrics Group reports vote percentages based on “for” and “against” votes cast and doesn't include abstentions or broker votes. This is the same approach the Securities and Exchange Commission uses under SEC Rule 14a-8(i)(12) to evaluate the support received by proposals in previous years. Please also note that many results are preliminary and do not include all 2008 meetings, because some companies have declined to release vote totals on shareholder resolutions until their next quarterly regulatory filing. Finally, the 2007 averages include only those meetings that occurred from Jan. 1 through June 30 of that year